Why Multifamily Investors Need to Take a Deeper Dive Into Charm City

by John Nelson

By Christine Espenshade of Newmark

Baltimore is an often-overlooked gem of a city along the Northeast Corridor between Washington, D.C., and New York City. This waterfront town is home to two major sports teams, a world-class symphony and art museums that rival those in the best cities around the world. 

Christine Espenshade, Newmark

Baltimore is more often referenced as the location for various crime TV shows rather than being known as home to two of the top medical facilities in the world — Johns Hopkins Hospital and the University of Maryland Medical System — Johns Hopkins University, and headquarters for famous companies such as Under Armour, T. Rowe Price and McCormick Spices. 

The multifamily market in Baltimore is also often overlooked by investors in favor of larger cities. However, to spur the development of top-quality rental products, Baltimore City and Baltimore County offer lucrative property tax abatements for new developments. 

The region continually sees consistent population growth due to the “eds and meds” nature of the economy, and the lower cost of living when compared to D.C. or Philadelphia attracts a well-educated workforce looking to enjoy the live-work-play lifestyle. The popularity of Baltimore for employers and employees is evident when considering the 35,000 jobs added in the region over the past 12 months and the incredibly low unemployment rate of 2.8 percent.

Investors should look at Baltimore multifamily with a very close lens. Demand is expected to outpace supply, given the slowdown in development, which should further promote exceptional and steady rent growth. The region’s new supply is projected to be 1,300 units through 2027, with steady and consistent annual rent growth of 3 percent projected through 2028. This represents only 1.6 percent of current inventory — one of the nation’s lowest ratios.

Three exciting developments will further transform the Baltimore real estate market. Beginning this year, more than 5,300 employees from the State of Maryland will relocate to Baltimore’s central business district (CBD). The economic impact of this move is significant as the expansion of restaurants, hotels and infrastructure will create jobs and demand for housing within the city limits. 

Also well underway is the redevelopment of Baltimore Peninsula, the new home to Under Armor’s headquarters and CFG Bank. This 235-acre development, two miles from the center of downtown Baltimore, will include 1.1 million square feet of office, residential, restaurant and park space with water views and access to the region’s top transportation arteries. 

Most notably, however, is the recently approved redevelopment of Harborplace, the long-standing centerpiece of Baltimore’s iconic Inner Harbor. Baltimore developer MCB Real Estate has developed innovative plans to redevelop the 3.2-acre waterfront parcel with four new buildings that will include 410,000 square feet of office, retail and restaurant space; 900 new multifamily units with unobstructed water views; a 2,000-seat amphitheater; and 30,000 square feet of green space. 

A project of this magnitude has not been undertaken in Baltimore City since James Rouse initially imagined Harborplace as a gathering hub for residents, businesses and tourists in 1980. This development is primed to further establish Baltimore as a top destination for companies looking to be near a well-educated workforce in a city with top-notch amenities, including restaurants, theaters, sports and recreational access.

Like other cities nationwide, Baltimore experienced a slowdown in multifamily investment sales in 2023, with only $500 million of sales recorded. Trailing cap rates hovered near 5 percent, with pro-forma cap rates approaching 5.5 percent, given projected rent growth. Due to Maryland’s triennial assessment cycle, Baltimore multifamily owners enjoy a stable and predictable property tax environment. Property tax certainty, set for three years at a time, allows owners to achieve excellent cash-on-cash returns and predict distributable cash flow for investors. 

Aptly named Charm City for its beauty and cultural attractions, multifamily investors should embrace Baltimore and all it offers — an exceptional renter population, a solid job base and recreational amenities provided only in America’s best cities.

— By Christine Espenshade, vice chairman of investment sales-multifamily capital markets, Newmark. This article was originally published in the April 2024 issue of Southeast Real Estate Business.

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